detroit disclosure statement

8/13/2019 Detroit Disclosure Statement

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THIS DISCLOSURE STATEMENT IS BEING SUBMITTED FOR APPROVAL BUT HAS

NOT BEEN APPROVED BY THE BANKRUPTCY COURT. THIS IS NOT A

SOLICITATION OF ACCEPTANCE OR REJECTION OF THE PLAN. ACCEPTANCES ORREJECTIONS MAY NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT HAS

BEEN APPROVED BY THE BANKRUPTCY COURT. THIS DISCLOSURE STATEMENT

MAY BE REVISED TO REFLECT EVENTS THAT OCCUR AFTER THE DATE HEREOF

BUT PRIOR TO THE BANKRUPTCY COURT'S APPROVAL OF THE DISCLOSURE

STATEMENT.

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

---------------------------------------------------------------In re

CITY OF DETROIT, MICHIGAN,

Debtor.

---------------------------------------------------------------

x:::::::x

Chapter 9

Case No. 13-53846

Hon. Steven W. Rhodes

DISCLOSURE STATEMENT WITH RESPECT TO

PLAN FOR THE ADJUSTMENT OF DEBTS OF THE CITY OF DETROIT

DAVID G.HEIMANHEATHER LENNOXTHOMAS A.WILSONJONES DAYNorth Point901 Lakeside Avenue

BRUCE BENNETTJONES DAY555 South Flower StreetFiftieth FloorLos Angeles, California 90071Telephone: (213) 243 2382

JONATHAN S.GREENSTEPHEN S.LAPLANTEMILLER, CANFIELD,

PADDOCK AND STONE, P.L.C.150 West JeffersonSuite 2500

Docket #2709 Date Filed: 2/21/2014


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DISCLOSURE STATEMENT, DATED FEBRUARY 21, 2014

SOLICITATION OF VOTES WITH RESPECT TO

PLAN FOR THE ADJUSTMENT OF DEBTS OF THE CITY OF DETROIT, MICHIGAN

________________________

The City of Detroit ("Detroit" or the "City") believes that the Plan for the Adjustment of Debts of the City

of Detroit (the "Plan") attached as Exhibit A to this Disclosure Statement (this "Disclosure Statement") is in the

best interests of creditors. All creditors entitled to vote thereon are urged to vote in favor of the Plan. A summary

of the voting instructions is set forth beginning on page 110 of this Disclosure Statement. Additional instructions are

contained on the ballots distributed to the creditors entitled to vote on the Plan. To be counted, your ballot must be

duly completed, executed and received by the City at or before [4]:00 p.m., Eastern Time, on [__________], 2014(the "Voting Deadline"), unless the Voting Deadline is extended.

________________________

The effectiveness of the proposed Plan is subject to material conditions precedent, some of which may not

be satisfied. See Section V.D.1. There is no assurance that these conditions will be satisfied or waived.

________________________

All capitalized terms used in this Disclosure Statement and not otherwise defined herein shall have the meaningsgiven to them in the Plan.

___________

This Disclosure Statement is the only document that the Bankruptcy Court has approved for use in connection withthe solicitation of votes on the Plan. No entity is authorized by the City to give any information or to make anyrepresentation other than as contained in this Disclosure Statement and the exhibits attached hereto or incorporated byreference or referred to herein in connection with the Plan or the solicitation of acceptances of the Plan. Information orrepresentations derived from any other source may not be relied upon as having been authorized by the City.

________________________

ALL CREDITORS ENTITLED TO VOTE ON THE PLAN ARE ENCOURAGED TO READ AND

CAREFULLY CONSIDER THIS ENTIRE DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED

AS EXHIBIT A AND THE RISK FACTORS DESCRIBED UNDER SECTION XII, PRIOR TO SUBMITTING

BALLOTS IN RESPONSE TO THIS SOLICITATION.

________________________

The summaries of the Plan and other documents contained in this Disclosure Statement are qualified by reference

to the Plan itself, the exhibits and supplemental documents thereto (collectively, the "Plan Supplement Documents") anddocuments described therein as Filed prior to approval of this Disclosure Statement. In the event that any inconsistency orconflict exists between this Disclosure Statement and the Plan, the terms of the Plan will control. Except as otherwiseindicated, the City will File all Plan Supplement Documents with the United States Bankruptcy Court for the EasternDistrict of Michigan (the "Bankruptcy Court") and make them available for review on the Document Website(www.kccllc.net/detroit) prior to the Confirmation Hearing;provided,however, that (a) exhibits relating to the assumptionand rejection of Executory Contracts and Unexpired Leases under the Plan will be filed no later than seven calendar days


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contained in this Disclosure Statement, including the information regarding the history and operations of the City and anyfinancial information regarding the City, is included for the purpose of soliciting acceptances of the Plan. As to contestedmatters, adversary proceedings or any other litigation, the statements made in this Disclosure Statement are not to beconstrued as admissions or stipulations, but rather as statements made in settlement negotiations as part of the City'sattempt to settle and resolve its Liabilities pursuant to the Plan. This Disclosure Statement shall not be admissible in anynon-bankruptcy proceeding, nor shall it be construed to be conclusive advice on the tax, securities or other legal effects ofthe Plan as to any party, including any Holder of a Claim against the City. Except where specifically noted, the financialinformation contained in this Disclosure Statement and in its Exhibits has not been audited by a certified public accountantand may not have been prepared in accordance with standards promulgated by the Government Accounting StandardsBoard or generally accepted accounting principles in the United States.

________________________

FORWARD-LOOKING STATEMENTS

This Disclosure Statement contains forward-looking statements based primarily on the current expectations of theCity and projections about future events and financial trends affecting the financial condition of the City and its assets.The words "believe," "may," "estimate," "continue," "anticipate," "intend," "expect" and similar expressions identify theseforward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties andassumptions, including those described below under the caption "Risk Factors" in Section XII. In light of these risks anduncertainties, the forward-looking events and trends discussed in this Disclosure Statement may not occur, and actualresults could differ materially from those anticipated in the forward-looking statements. The City does not undertake anyobligation to update or revise publicly any forward-looking statements, whether as a result of new information, future

events or otherwise.

This Disclosure Statement has not been approved or disapproved by the United States Securities and

Exchange Commission (the "SEC"), any state securities commission or any securities exchange or association nor

has the SEC, any state securities commission or any securities exchange or association passed upon the accuracy or

adequacy of the statements contained herein.

________________________


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TABLE OF CONTENTS

Page

I. INTRODUCTION ............................................................................................................................................................... 1

A. Parties Entitled to Vote on the Plan ............................................................................................................ 1

B. Solicitation Package .................................................................................................................................... 2

C. Voting Procedures, Ballots and Voting Deadline ....................................................................................... 3

D. Plan Supplement Documents ...................................................................................................................... 3

E. Confirmation Hearing and Deadline for Objections to Confirmation ......................................................... 3

II. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS UNDER THE PLAN .................................... 4

A. Overview .................................................................................................................................................... 4

1. Introduction to the Plan ................................................................................................................ 4

2. Special Information Regarding Pension Claims ........................................................................... 4

B. Classification and Treatment of Claims Under the Plan ............................................................................. 9

III. EVENTS PRECEDING THE CITY'S CHAPTER 9 CASE ........................................................................................... 19

A. Background ............................................................................................................................................... 19

1. General Information ................................................................................................................... 19

2. Municipal Services ..................................................................................................................... 20

3. City Funds .................................................................................................................................. 20

4. Sources of General Fund Revenue ............................................................................................. 23

5. Assets ......................................................................................................................................... 26

B. Outstanding Financial Obligations of the City as of the Petition Date ..................................................... 28

1. Obligations Secured by Special Revenues ................................................................................. 28

2. Long-Term General Fund Obligations ....................................................................................... 29

3. Certificates of Participation ........................................................................................................ 30

4. Swap Liabilities .......................................................................................................................... 31

5. Pension Obligations .................................................................................................................... 32

6.

Other Post-Employment Benefit Obligations ............................................................................. 35

7. Other Liabilities .......................................................................................................................... 37

C. The City's Steady Operational and Financial Decline............................................................................... 38

1. Declines in Population and the City's Manufacturing Base ........................................................ 38

2 Declining Revenues 39


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TABLE OF CONTENTS(continued)

Page

9. Steady State Prepetition Financial Projections ........................................................................... 52

D. Prepetition Measures Taken by City to Address Challenges .................................................................... 52

1. Consent Agreement/Creation of Financial Advisory Board ....................................................... 52

2. Headcount Reductions ................................................................................................................ 53

3. Imposition of City Employment Terms ...................................................................................... 54

4. Revenue Generating Initiatives .................................................................................................. 54

5.

Reduced Operating Expenditures ............................................................................................... 54

6. Deferred Capital Expenditures ................................................................................................... 54

7. Cash Conservation Measures...................................................................................................... 54

8. Demolition Initiatives ................................................................................................................. 55

9. Appointment of the Emergency Manager ................................................................................... 55

10. The June 14 Creditor Proposal ................................................................................................... 56

11.

Barriers to Out-of-Court Restructuring ...................................................................................... 57

12. Insolvency .................................................................................................................................. 59

IV. THE CHAPTER 9 CASE ................................................................................................................................................ 59

A. Commencement of the Chapter 9 Case ..................................................................................................... 59

B. Retiree Committee .................................................................................................................................... 59

C. Eligibility .................................................................................................................................................. 61

D.

Swap Settlement ....................................................................................................................................... 62

1. Forbearance and Optional Termination Agreement ................................................................... 62

2. Litigation Regarding the Casino Revenues and the FOTA ........................................................ 63

3. Litigation Regarding the COPs ................................................................................................... 65

E. Mediation .................................................................................................................................................. 65

1. Restructuring Mediation ............................................................................................................. 65

2.

Labor/OPEB Mediation .............................................................................................................. 65

3. Other Mediation ......................................................................................................................... 66

F. Postpetition Financing .............................................................................................................................. 66

1. Purpose ....................................................................................................................................... 66

G. Claims Process and Establishment of Bar Dates ...................................................................................... 67


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Page

I. Fee Matters ............................................................................................................................................... 69

J. Operational Restructuring Initiatives/Asset Dispositions ......................................................................... 70

1. DWSD Transaction .................................................................................................................... 70

2. Modification of Retiree Benefits/Healthcare Redesign .............................................................. 70

3. Transition of Lighting Grid to DTE ........................................................................................... 73

4. Transition of Lighting Work to PLA .......................................................................................... 73

5.

Land/Blight Initiatives ................................................................................................................ 74

6. Belle Isle Lease .......................................................................................................................... 74

7. Detroit Institute of Arts .............................................................................................................. 75

8. Joe Louis Arena .......................................................................................................................... 76

9. Sale of Veterans' Memorial Building ......................................................................................... 76

10. Coleman A. Young Airport ........................................................................................................ 77

V. THE PLAN ....................................................................................................................................................................... 77

A. General...................................................................................................................................................... 77

B. Classification and Treatment of Claims .................................................................................................... 77

1. Unclassified Claims .................................................................................................................... 77

2. Classified Claims ........................................................................................................................ 78

C. Treatment of Executory Contracts and Unexpired Leases ........................................................................ 86

1.

Assumption ................................................................................................................................. 86

2. Assumption of Ancillary Agreements ........................................................................................ 86

3. Approval of Assumptions and Assignments ............................................................................... 87

4. Payments Related to the Assumption of Executory Contracts and Unexpired Leases ............... 87

5. Contracts and Leases Entered Into After the Petition Date ........................................................ 87

6. Rejection of Executory Contracts and Unexpired Leases........................................................... 87

7.

Rejection Damages Bar Date ...................................................................................................... 88

8. Preexisting Obligations to the City Under Rejected Executory Contracts and UnexpiredLeases ......................................................................................................................................... 88

9. Insurance Policies ....................................................................................................................... 88

D. Effectiveness of the Plan........................................................................................................................... 88


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Page

3. Preservation of Rights of Action by the City. ............................................................................. 90

4. Comprehensive Settlement of Claims and Controversies. .......................................................... 90

5. Discharge of Claims ................................................................................................................... 90

6. Injunction. .................................................................................................................................. 91

7. Exculpation. ................................................................................................................................ 91

8. Releases ...................................................................................................................................... 92

F.

Retention of Jurisdiction by the Bankruptcy Court................................................................................... 92

VI. MEANS OF IMPLEMENTATION OF THE PLAN ...................................................................................................... 93

A. The New Notes ......................................................................................................................................... 93

1. The New B Notes ....................................................................................................................... 93

2. The New C Notes ....................................................................................................................... 93

B. Alternatives Related to DWSD ................................................................................................................. 94

1.

DWSD Remains a Department of the City ................................................................................. 94

2. Potential DWSD Transaction ..................................................................................................... 96

C. The Plan COP Settlement ......................................................................................................................... 97

D. The Plan PFRS Settlement ........................................................................................................................ 97

E. The Plan GRS Settlement ......................................................................................................................... 97

F. The OPEB Claims Note ............................................................................................................................ 98

G.

The DIA Settlement .................................................................................................................................. 98

1. Funding Contributions ................................................................................................................ 98

2. Transfer of DIA Assets ............................................................................................................... 98

3. Conditions to the Foundations' Participation .............................................................................. 98

H. Issuance of the New Securities ................................................................................................................. 99

I. Cancellation of Existing Bonds and Bond Documents ............................................................................. 99

J.

Release of Liens ........................................................................................................................................ 99

K. Professional Fee Reserve .......................................................................................................................... 99

L. Assumption of Indemnification Obligations ............................................................................................. 99

M. Incorporation of Retiree Health Care Settlement .................................................................................... 100

N. Exit Facility ............................................................................................................................................ 100


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Page

6. Selection of Distribution Dates for Allowed Claims ................................................................ 101

7. Limitations on Amounts to Be Distributed to Holders of Allowed Claims OtherwiseInsured ...................................................................................................................................... 101

8. City's Rights of Setoff Preserved .............................................................................................. 101

9. Delivery of Distributions and Undeliverable or Unclaimed Distributions. .............................. 101

10. Other Provisions Applicable to Distributions in All Classes .................................................... 102

P.

Procedures for Resolving Disputed Claims ............................................................................................ 103

1. Treatment of Disputed Claims .................................................................................................. 103

2. Disputed Claims Reserve ......................................................................................................... 104

3. Objections to Claims ................................................................................................................ 104

VII. VOTING REQUIREMENTS ...................................................................................................................................... 105

A. Voting Deadline ...................................................................................................................................... 106

B.

Holders of Claims Entitled to Vote ......................................................................................................... 106

C. Vote Required for Acceptance by a Class .............................................................................................. 106

D. Voting Procedures .................................................................................................................................. 107

1. Ballots ....................................................................................................................................... 107

2. Beneficial Owners of Old Securities ........................................................................................ 107

3. Brokerage Firms, Banks and Other Nominees ......................................................................... 108

4. Withdrawal or Change of Votes on the Plan ............................................................................ 108

5. Voting Multiple Claims ............................................................................................................ 108

6. Voting Transferred Claims ....................................................................................................... 109

VIII. CONFIRMATION OF THE PLAN ........................................................................................................................... 109

A. Confirmation Hearing ............................................................................................................................. 109

B. Deadline to Object to Confirmation ........................................................................................................ 109

C. Requirements for Confirmation of the Plan ............................................................................................ 109

1. Acceptance or Cramdown ........................................................................................................ 110

2. Alternatives to Confirmation and Consummation of the Plan .................................................. 113

IX. REINVESTMENT INITIATIVES ................................................................................................................................ 114

A. Public Safety ........................................................................................................................................... 114


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Page

A. Expansion of the Tax Base ..................................................................................................................... 118

B. Rationalization of Nominal Tax Rates .................................................................................................... 118

C. Increasing Collection Rates .................................................................................................................... 119

XI. PROJECTED FINANCIAL INFORMATION ............................................................................................................. 120

A. Projections .............................................................................................................................................. 120

1. Assumptions ............................................................................................................................. 121

XII. CERTAIN RISK FACTORS TO BE CONSIDERED ................................................................................................. 123

A. Non-Confirmation of the Plan ................................................................................................................ 123

B. Nonconsensual Confirmation ................................................................................................................. 123

C. Inability to Confirm Plan Prior to Potential Removal of Emergency Manager ...................................... 124

D. Conditions to Effectiveness of the Plan .................................................................................................. 124

E. Non-Occurrence of DIA Settlement or Non-Receipt of the Full Amount of the DIA Proceeds,

the State GRS Consideration or the State PFRS Consideration .............................................................. 124

F. Failure to Secure Exit Facility ................................................................................................................ 124

G. Inability to Raise Tax Revenue ............................................................................................................... 124

H. Failure to Achieve Projected Financial Performance.............................................................................. 124

I. Unforeseen Financial Circumstances Affecting the City's Future Financial Performance ..................... 125

J. Litigation if Unlimited Tax General Obligation Bonds Are Impaired .................................................... 125

K. Other Litigation ...................................................................................................................................... 125

L. City Credit May be Viewed Negatively By The Market ........................................................................ 125

M. Population Loss ...................................................................................................................................... 125

N. The City Has No Duty to Update ............................................................................................................ 125

O. No Representations Outside This Disclosure Statement Are Authorized ............................................... 126

P. Nature and Amount of Allowed Claims ................................................................................................. 126

XIII. FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN ...................................... 126

A. Exchange of Property Differing Materially in Kind or Extent, Generally .............................................. 127

B. Treatment of Claim Holders Receiving Distributions Under the Plan .................................................... 127

1. Holders Whose Existing Bonds or Other Debt Obligations Will Be Exchanged forProperty Including New Securities ........................................................................................... 127

2 PFRS Claims and GRS Claims 129


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Page

XIV. APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS ................................................ 130

A. General.................................................................................................................................................... 130

1. Registration Of Securities ......................................................................................................... 130

2. Market Disclosure .................................................................................................................... 131

XV. ADDITIONAL INFORMATION ............................................................................................................................... 132

XVI. RECOMMENDATION AND CONCLUSION ......................................................................................................... 132


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TABLE OF EXHIBITS

Exhibit A: Plan for the Adjustment of Debts of the City of Detroit

Exhibit B: DWSD Sewer Bonds & DWSD Revolving Sewer Bonds

Exhibit C: DWSD Water Bonds & DWSD Revolving Water Bonds

Exhibit D: Unlimited Tax General Obligation Bonds

Exhibit E: Limited Tax General Obligation Bonds

Exhibit F: Prepetition Steady State Projection of Legacy Expenditures

Exhibit G: Prepetition Fiscal Year 2014 Forecasted Cash Flow

Exhibit H: Prepetition Projected Revenues, Expenditures, Operating Surpluses, Legacy Obligations &Deficits Through Fiscal Year 2017

Exhibit I: Ten-Year Plan of Adjustment Restructuring and Reinvestment Initiatives

Exhibit J: Ten-Year Financial Projections


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INDEX OF DEFINED TERMS

1983 Claims ............................................................ 69

2005 COPs .............................................................. 302005 Funding Trust ................................................. 312005 Service Contracts ............................................ 312006 COPs .............................................................. 312006 Funding Trust ................................................. 302013 Financial Review Team Report ...................... 552014 Retiree Health Care Plan ................................ 7136th Judicial District ............................................... 37ACO ........................................................................ 21Act 392 Bonds ......................................................... 72

Actuary Application ................................................ 60ADR Procedures Order ........................................... 69ADR Procedures ...................................................... 66ADR Procedures Motion ......................................... 67Affordable Care Act ................................................ 71AFSCME ................................................................. 60Allowed Pension Claims ........................................... 6Ambac ..................................................................... 29Amended List of Creditors ...................................... 28

American Roads ...................................................... 27Annuity Savings Plan .............................................. 33Appointment Order ................................................. 59Appraised Art .......................................................... 75APS ......................................................................... 22Asset Transfer ......................................................... 26Assured .................................................................... 28Automobile Parking Fund ....................................... 22Balloting Agent ......................................................... 3

Bankruptcy Code .............................................preambleBankruptcy Court ............................................preambleBankruptcy Rules ............................................preambleBar Date Order ........................................................ 67Belle Isle Agreement ............................................... 74Bench Decision ....................................................... 61Berkshire Hathaway ................................................ 28Brooks Wilkins ........................................................ 60BSEED .................................................................... 52C&F Agreement ...................................................... 72

Case Evaluation ....................................................... 67Casino Revenue Proceeding .................................... 63Casino Revenue Stay Order .................................... 64Casino Revenues ..................................................... 32CBAs ....................................................................... 36Certification Order .................................................. 62CETs 44

COPs ........................................................................ 31

CRT ......................................................................... 93CWA ........................................................................ 21DDA ........................................................................ 28DDOT ...................................................................... 22Dentons .................................................................... 60Designated Claims ................................................... 67Detroit ..............................................................preambleDFD ......................................................................... 35DFFA ....................................................................... 35DIA ............................................................................ 4

DIA Collection ........................................................ 26DIA Corp. ................................................................ 26Disclosure Statement .......................................preambleDisclosure Statement Order ....................................... 3Disk ........................................................................... 2Disputed Claims Reserve ....................................... 104District Court ........................................................... 21Document Website .................................................... 2DPD ......................................................................... 35

DPOA ...................................................................... 35DRCEA ................................................................... 62DTE ......................................................................... 47DWSD ..................................................................... 21DWSD Revolving Bonds ......................................... 28DWSD Sewer Bonds ............................................... 28DWSD Transaction .................................................. 70DWSD Water Bonds ............................................... 29Eligibility ................................................................. 61

Eligibility Order ....................................................... 61Eligibility Proceedings ............................................ 61Eligibility Trial ........................................................ 61Emergency Manager ................................................ 56EMS ......................................................................... 50Enterprise Funds ...................................................... 20EPA ......................................................................... 21EVIP ........................................................................ 29Excess Allocations ..................................................... 7FAB ......................................................................... 53

FBI ........................................................................... 34Fee Examiner ........................................................... 70Fee Review Order .................................................... 60FGIC ........................................................................ 28Final Report ............................................................. 75Financial and Operating Plan................................... 56Financial Review Team 52


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Foundations ............................................................. 76FSA ......................................................................... 71Funding Trusts......................................................... 31General Bar Date ..................................................... 67

General Fund ........................................................... 20General Obligation Bonds ....................................... 29General Receipts Account ....................................... 32GLWA ..................................................................... 70Governor ................................................................. 44GRS ......................................................................... 32GRS Trustees........................................................... 33GSTR....................................................................... 93Health & Wellness Department ............................. 121

Health/Life Benefit Plan .......................................... 35Holdback Account ................................................... 32Home Rule City Act ................................................ 19HUD ........................................................................ 49IG/AG Report .......................................................... 33Ingham County Court .............................................. 58Injunction Orders ..................................................... 58IPH ........................................................................ 121IRC ........................................................................ 126IRS ........................................................................ 126IT ............................................................................. 51Judge Perris ............................................................. 64Judge Rosen ............................................................ 64Judicature Act .......................................................... 37June 14 Creditor Proposal ....................................... 56Lazard ...................................................................... 60LEFALB .................................................................. 20Legislature ............................................................... 25Limited Tax General Obligation Bonds .................. 29

List of Claims .......................................................... 28LTGO Litigation ..................................................... 30MCR ........................................................................ 37MDEQ ..................................................................... 21Mediation Order ...................................................... 65Michigan Constitution ............................................... 4Monthly Invoices..................................................... 70Moore Declaration ................................................... 34Most Valuable Works .............................................. 75

Motion to Withdraw ................................................ 61MPD ........................................................................ 22MTA ........................................................................ 67Municipal Finance Act ............................................ 31NAACP Lawsuit ..................................................... 69NAACP Plaintiffs .................................................... 69New Debt Securities .............................................. 128

Optional Termination Right ..................................... 63Order Appointing Fee Examiner ............................. 60Order for Relief ....................................................... 61Original JLA Lease .................................................. 27

Original List of Creditors......................................... 28PA 100 ..................................................................... 24PA 392 ..................................................................... 72PA 4 ......................................................................... 52PA 436 ..................................................................... 20PA 436 Challenge Stay Order .................................. 69PA 59 ....................................................................... 25PA 72 ....................................................................... 55Parking Bonds ......................................................... 29

Pensions Clause ......................................................... 4Petition Date .............................................................. 9PFRS ........................................................................ 32Phillips Lawsuit ....................................................... 69Phillips Plaintiffs ..................................................... 69Phillips Stay Relief Motion ..................................... 69PLA ......................................................................... 24PLA Bonds .............................................................. 43PLA Order ............................................................... 72Plan ..................................................................preamblePlan Injunction ......................................................... 68Plan Supplement Documents ...........................preamblePLD ......................................................................... 47Pledged Revenues .................................................... 72Postpetition Financing ............................................. 67Preliminary Report .................................................. 75Professionals ............................................................ 70Projections ............................................................. 120Purchaser ................................................................. 66

PVB ......................................................................... 22Quality of Life Loan ................................................ 66RDPFFA .................................................................. 62RDPMA ................................................................... 62Recent Debt Issuances ............................................. 44Red Wings ............................................................... 27Retiree Committee ................................................... 59Retiree Representatives ........................................... 71Retirees .................................................................... 59

Retirement Systems ................................................... 4Revenue Bond Act ................................................... 28Revenue Bonds ........................................................ 28Revenue Hurdle ....................................................... 93RTA ....................................................................... 116Rule ....................................................................... 131S&P ......................................................................... 44


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Stay Relief Motion .................................................. 68Supplemental Plan ................................................... 35Swap Contracts ........................................................ 31Swap Counterparties ............................................... 31

Swap Insurers .......................................................... 31Swap Settlement Motion ......................................... 63Swap Settlement Proceeding ................................... 64Swap Termination Loan .......................................... 66Syncora .................................................................... 27Syncora Settlement Objection ................................. 64Third Mediation Order ............................................ 65Transferred Art ........................................................ 26Transportation Fund ................................................ 22

Treasury ................................................................... 25Trust Agreement ...................................................... 72Trustee ..................................................................... 72Tunnel Lease ........................................................... 27U.S. Bank ................................................................ 31U.S. Trustee ............................................................. 59UAAL ........................................................................ 5UAW ....................................................................... 60Unlimited Tax General Obligation Bonds ............... 29UTGO Litigation ..................................................... 29Voting Deadline ..............................................preambleWater Fund .............................................................. 21


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I.

INTRODUCTION

The City, as the debtor in the above-captioned chapter 9 case pending before the United States Bankruptcy Court,

has prepared this Disclosure Statement to solicit votes of creditors to accept the Plan proposed by the City. A copy of thePlan is attached as Exhibit A to this Disclosure Statement.

This Disclosure Statement contains information regarding the City's prepetition operating and financial history,significant events leading up to the commencement of the City's chapter 9 case, significant events that have occurred duringthe City's chapter 9 case and the restructuring transactions that will take place if the Plan is confirmed and becomeseffective. This Disclosure Statement also describes the terms and conditions of the Plan, including certain effects ofConfirmation of the Plan, certain risk factors (including those associated with securities to be issued under the Plan) and themanner in which Distributions will be made under the Plan. In addition, this Disclosure Statement describes the Plan

Confirmation process and the voting procedures that Holders of Claims entitled to vote on the Plan must follow for theirvotes to be counted.

On [______], 2014, the Bankruptcy Court entered an order approving this Disclosure Statement as containing"adequate information," i.e., information of a kind and in sufficient detail to enable a hypothetical reasonable investortypical of the Holders of Claims to make an informed judgment about the Plan. THE BANKRUPTCY COURT'SAPPROVAL OF THIS DISCLOSURE STATEMENT CONSTITUTES NEITHER A GUARANTY OF THEACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN NOR AN ENDORSEMENT OFTHE MERITS OF THE PLAN BY THE BANKRUPTCY COURT.

A. Parties Entitled to Vote on the PlanUnder the provisions of the Bankruptcy Code, not all creditors are entitled to vote on a chapter 9 plan. Creditors

whose Claims are not impaired by a plan are deemed to accept the plan under section 1126(f) of the Bankruptcy Code andare not entitled to vote. In addition, creditors whose claims are impaired by a plan and who will receive no distributionunder such plan also are not entitled to vote because they are deemed to have rejected the plan under section 1126(g) of theBankruptcy Code. For a discussion of these matters, see Section VII, "Voting Requirements" and Section VIII,"Confirmation of the Plan."

The following sets forth which Classes are entitled to vote on the Plan and which are not:

The City is not seeking votes from the Holders of Claims in Classes 2A (Secured GO Series 2010Claims), 2B (Secured GO Series 2010(A) Claims), 2C (Secured GO Series 2012(A2) Claims), 2D(Secured GO Series 2012(A2-B), 2E (Secured GO Series 2012(B) Claims), 2F (Secured GOSeries 2012(B2) Claims), 3 (Other Secured Claims), 4 (HUD Installment Notes Claims) and 6 (ParkingBond Claims) because the City believes those Claims are not impaired by the Plan. Pursuant to section1126(f) of the Bankruptcy Code, Holders of these Claims are conclusively presumed to have accepted thePlan. Accordingly, Holders of Claims in classes 2A, 2B, 2C, 2D, 2E, 2F, 3, 4 and 6 will not have the

right to vote with respect to the Plan.

Holders of Claims in Class 15 (Subordinated Claims) will be impaired under the Plan. Because the Citydoes not anticipate that such Holders will receive any Distributions pursuant to the Plan, and consistentwith the language of section 1126(g) of the Bankruptcy Code, each Holder of a Claim in Class 15 will bedeemed to have rejected the Plan. Accordingly, Holders of Class 15 Claims will not have the right to

t ith t t th Pl


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of such Allowed Claims. The Holders of such Claims will have the right to vote to accept or reject thePlan.

The treatment of Claims in Class 5 (Cop Swap Claims) is to be determined. IF YOU ARE RETIRED FROM THE CITY OF DETROIT AND ARE RECEIVING A PENSION,

OR ARE AN ACTIVE EMPLOYEE ENTITLED TO A PENSION UPON YOUR RETIREMENT,

OR ARE RECEIVING RETIREE HEALTH BENEFITS FROM THE CITY, YOU ARE A

HOLDER OF EITHER A CLASS 10 OR CLASS 11 CLAIM AND YOU ARE ENTITLED TO

VOTE ON THIS PLAN OF ADJUSTMENT.

For a detailed description of the Classes of Claims and their treatment under the Plan, see Section II, "Summary ofClassification and Treatment of Claims Under the Plan."

B. Solicitation PackageThe package of materials (the "Solicitation Package") to be sent to Holders of Claims entitled to vote on the Plan

will contain:

1. A cover letter describing: (a) the contents of the Solicitation Package; (b) the contents of any enclosedCD or DVD (a "Disk") and instructions for use of the Disk; and (c) information about how to obtain, atno charge, paper copies of any materials provided on the Disk.

2. A paper copy of the notice of the Confirmation Hearing (the "Confirmation Hearing Notice").

3. For retirees, a notice providing a clear, concise summary of (a) the process for obtaining approval of thePlan; (b) the likely effect of the Plan on retiree pension and other post-employment benefits; and(c) instructions on how to vote on the Plan.

4. The Disclosure Statement together with the exhibits thereto, including the Plan, that have been Filed withthe Bankruptcy Court before the date of the mailing. This Disclosure Statement and the Plan, includingexhibits, total well over 400 pages in length. To reduce the costs of printing and mailing such a

voluminous document, the City may, but is not required to, serve the Disclosure Statement and the Plan(including exhibits) via Disk instead of in printed format. In addition to the service procedures outlinedabove (and to accommodate creditors who wish to review exhibits not included in the SolicitationPackages in the event of paper service): (a) the Plan, the Disclosure Statement and, once they are filed,all exhibits to both documents will be made available at no charge via the internet athttp://www.kccllc.net/detroit (the "Document Website"); and (b) the City will provide parties in interest(at no charge) with paper copies of the Plan and/or Disclosure Statement upon written request.

5. A letter from the City recommending that creditors vote to accept the Plan.

6. For Holders of Claims in voting Classes, an appropriate form of Ballot, instructions on how to completethe Ballot and a Ballot return envelope and such other materials as the Bankruptcy Court may direct(Ballots are provided only to Holders of Claims in Class 1A (DWSD Class A Water Claims),Class 1B (DWSD Class B Water Claims), Class 1C (DWSD Class A Sewer Claims), Class 1D (DWSDClass B Sewer Claims), Class 1E (DWSD Revolving Sewer Bonds Claims), Class 1F (DWSD RevolvingWater Bonds Claims, Class 7 (Limited Tax General Obligation Bond Claims), Class 8 (Unlimited TaxG l Obli i B d Cl i ) Cl 9 (COP Cl i ) Cl 10 (PFRS Cl i ) Cl 11 (GRS


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C. Voting Procedures, Ballots and Voting DeadlineIf you are entitled to vote to accept or reject the Plan, a Ballot is enclosed for the purpose of voting on the Plan.

After carefully reviewing: (1) the Plan; (2) this Disclosure Statement; (3) the order entered by the Bankruptcy

Court (Docket No. [__]) (the "Disclosure Statement Order") that, among other things, established procedures for voting onthe Plan, scheduled a hearing to consider Confirmation of the Plan (the "Confirmation Hearing") and set the VotingDeadline and the deadline for objecting to Confirmation of the Plan; and (4) the detailed instructions accompanying yourBallot, please indicate your acceptance or rejection of the Plan by voting in favor of or against the Plan. For your vote to becounted, you must complete and sign your original Ballot (copies will not be accepted) and return it so that it is actuallyreceived at either of the addresses set forth below by the Voting Deadline.

Each Ballot has been coded to reflect the Class of Claims it represents. Accordingly, in voting to accept or rejectthe Plan, you must use only the coded Ballot or Ballots sent to you with this Disclosure Statement. To be counted, all

Ballots must be properly completed in accordance with the voting instructions on the Ballot and received no later than theVoting Deadline (i.e., [__________], 2014 at 5:00 p.m. (Eastern Time)) via regular mail, overnight courier or personaldelivery at the following address: City of Detroit Ballot Processing Center, c/o Kurtzman Carson Consultants LLC, 2335Alaska Avenue, El Segundo, California 90245. Ballots may not be submitted by facsimile or electronic mail, and anyBallots submitted by facsimile or electronic mail will not be accepted or counted. Ballots sent to any other address will notbe counted.

If you are a Holder of a Claim who is entitled to vote on the Plan as set forth in the Disclosure Statement Orderand did not receive a Ballot, received a damaged Ballot or lost your Ballot, or if you have any questions concerning the

Disclosure Statement, the Plan, the Ballot or the procedures for voting on the Plan, please contact Kurtzman CarsonConsultants LLC (the "Balloting Agent"): (1) by telephone (a) for U.S. and Canadian callers toll-free at 877-298-6236 and(b) for international callers at +1 310-751-2658;or (2) in writing at City of Detroit c/o Kurtzman Carson Consultants LLC,2335 Alaska Avenue, El Segundo, California 90245.

FOR FURTHER INFORMATION AND INSTRUCTIONS ON VOTING TO ACCEPT OR REJECT THE PLAN,SEE SECTION VII, "VOTING REQUIREMENTS."

Before voting on the Plan, each creditor should read this Disclosure Statement, the Plan, the Disclosure StatementOrder, the Confirmation Hearing Notice and the instructions accompanying the Ballots. These documents containimportant information concerning how Claims are classified for voting purposes and how votes will be tabulated.

D. Plan Supplement DocumentsThe City will separately file copies of all Plan Supplement Documents with the Bankruptcy Court prior to the

Confirmation Hearing;provided,however, that (1) exhibits relating to the assumption and rejection of Executory Contractsand Unexpired Leases pursuant to the Plan will be filed no later than seven calendar days prior to the Voting Deadline and(2) other key exhibits to the Plan (as detailed in the definition of Plan Supplement Documents in the Plan) will be either(a) included in any solicitation materials distributed to Holders of Claims in Classes entitled to vote to accept or reject the

Plan or (b) Filed as a supplement to the Plan no later than seven calendar days prior to the Voting Deadline. All PlanSupplement Documents will be made available on the Document Website once they are Filed. The City reserves the rightto modify, amend, supplement, restate or withdraw any of the Plan Supplement Documents after they are Filed and shallpromptly make such changes available on the Document Website.

E. Confirmation Hearing and Deadline for Objections to Confirmation


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objections must be Filed and served upon the persons designated in the Confirmation Hearing Notice in the manner and bythe deadline described therein.

II.

SUMMARY OF CLASSIFICATIONAND TREATMENT OF CLAIMS UNDER THE PLAN

The following Plan summary is a general overview only, which is qualified in its entirety by, and should be read in

conjunction with, the more detailed information appearing elsewhere in this Disclosure Statement and the Plan.

A. Overview1. Introduction to the PlanThe Plan provides for the resolution of a variety of complex financial and operational issues faced by the City.

The adjustment of the City's debts pursuant to the Plan will provide the greatest recovery for creditors of the City, whilesimultaneously allowing for meaningful and necessary investment in the City. The Plan contemplates the City's emergencefrom chapter 9 this year and represents a crucial step toward the City's rehabilitation and recovery from a decades-longdownward spiral.

The Plan includes settlements that will inure to the benefit of the City's creditors and its residents. The City settledcontroversial and sensitive issues relating to the Detroit Institute of Arts (the "DIA"), which settlement is expected to yield

at least $465 million to provide a source of recovery for the approximately 33,000 individuals who participate in the City'sretirement systems the General Retirement System and the Police and Fire Retirement System (together, the "RetirementSystems") and negotiated a settlement with the State of Michigan (the "State") that Holders of Pension Claims may, incertain circumstances, elect to accept.

Except in the case of subordinated Claims, the Plan provides a recovery to all classes of Claims. The Plan alsoallows for critical and meaningful investment in the City of approximately $1.5 billion over ten years in order to, amongother things: (1) provide (and improve) basic, essential services to City residents; (2) attract new residents and businessesto foster growth and redevelopment; (3) reduce crime; (4) demolish blighted and dangerous properties; (5) providefunctional streetlights that are aligned with the current population footprint; (6) improve information technology systems,thereby increasing efficiency and decreasing costs; and (7) otherwise set the City on a path toward a better future.

The City believes that the Plan gives the City the best chance of effectively adjusting its debts and reestablishingitself as a prosperous and productive American city. All creditors entitled to vote are encouraged to vote in favor of thePlan.

2. Special Information Regarding Pension ClaimsTHE PLAN, AND THE TREATMENT OF ALLOWED PENSION CLAIMS IN THE PLAN, ASSUME THE

EXISTENCE AND THE IMPLEMENTATION OF THE DIA SETTLEMENT AND THE RECEIPT OF THE FULLAMOUNTS OF THE STATE GRS CONSIDERATION AND THE STATE PFRS CONSIDERATION. IF THE DIASETTLEMENT DOES NOT, IN FACT, OCCUR, OR IF THE FULL AMOUNTS OF THE STATE GRSCONSIDERATION AND THE STATE PFRS CONSIDERATION ARE NOT, IN FACT, RECEIVED, THEN THETREATMENT OF ALLOWED PENSION CLAIMS IN CLASSES 10 AND 11 WILL BE MATERIALLY WORSETHAN (AND COMMENSURATELY REDUCED BELOW) THE TREATMENT PROVIDED FOR IN THE PLAN. THETREATMENT OF ALLOWED CLAIMS IN CLASSES 10 AND 11 AND THE SOURCES OF FUNDING FOR SUCH


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The Plan provides that, on the Effective Date, the City will assume the obligations related to the already accruedbenefits under the GRS pension plan and the PFRS pension plan as those benefits will have been modified in the Plan. Thismeans that the City will not seek to terminate the GRS or the PFRS. The City will continue to retain the responsibility tofund all amounts necessary to provide the adjusted (reduced) pension benefits to its employees and retirees who will haveaccrued benefits in either of the GRS or PFRS pension plans as of the Effective Date, although the City's contributions will

be fixed during the period ending June 30, 2023. Thereafter, the City will be required to contribute all amounts necessaryto fund the modified accrued pensions regardless of the actual future investment performance of the pension plan assets.

In the past, the Retirement Systems engaged in a variety of practices that contributed considerably to theunderfunding of the pension plans, particularly with respect to the GRS pension plan. As more fully discussed inSectionIII.B.5, these practices included: (a) consuming pension fund assets to pay promised returns under the separate"annuity savings plan," (b) dissipating pension fund assets during the years when returns on investment exceededexpectations through the so-called "13th check" program, (c) deferring required pension fund contributions from the Cityeach year and financing the deferred amounts at a rate of 8%. Serious allegations also have been made that various former

officials of the Retirement Systems accepted bribes and/or misappropriated assets of the Retirement Systems for their ownpersonal gain. In addition, the Retirement Systems have made many poor investments that have reduced the funded statusof the two pension plans. Finally, it appears that a large portion of the assets of the respective Retirement Systems isinvested in alternative investments for which no recognized market valuation exists. As of June 30, 2013, approximately24% of PFRS assets and 33% of GRS assets had estimated, rather than readily ascertainable, market values.

As a result of, among other things, these past practices, each of the GRS and the PFRS the underfunded. Each ofthe Retirement Systems has reported unfunded actuarial accrued liabilities ("UAAL") that are substantially lower than theamounts disclosed by the City in the List of Claims. In particular, as of June 30, 2012, the GRS reported that it was 77.0%

funded with a UAAL of $837.7 million out of $3.644 billion in accrued liabilities. As of June 30, 2012, the PFRS reportedthat it was 96.2% funded with a UAAL of $147.2 million out of $3.823 billion in accrued liabilities. Thus, based onactuarial assumptions and methods employed by the Retirement Systems prior to the commencement of the chapter 9 case,the estimated UAAL as of the end of Fiscal Year 2012 for both Retirement Systems combined was $984.9 million.

The City believes that the UAAL figures reported by the Retirement Systems were substantially understatedbecause they were based upon various actuarial assumptions and methods that served to substantially understate theRetirement Systems' UAAL. The assumptions and methods included: (a) annual net rates of return on investments (GRS 7.9%; PFRS 8.0%) that were unrealistic in light of the Retirement Systems' demographics, the targeted mix of theRetirement Systems' assets and the inability of the City to budget for and fund pension investment loss in the event the

sought-after returns were not achieved; (b) the "smoothing" (reallocation over a period of years) of asset gains and lossesover a seven year period, which masks the funding shortfall; and (c) the use of 29 year (PFRS) and 30-year (GRS)amortization periods for funding UAAL which is applied anew each year to the full amount of unfunded liability thatallows unfunded liabilities to continue to grow rapidly as a result of compounding.

In the List of Claims, the City set forth what it believes is a more realistic total UAAL for the Retirement Systemsof $3.474 billion, consisting of $2.037 billion in UAAL owed to the GRS and $1.437 billion in UAAL owed to the PFRS.As set forth in the Declaration of Charles M. Moore in Support of City of Detroit, Michigan's Statement of QualificationsPursuant to Section 109(c) of the Bankruptcy Code (Docket No. 13), which was filed on the Petition Date, the City's

actuary, Milliman Inc., calculated this UAAL figure merely by substituting the estimated market value of the RetirementSystems' assets for their actuarial value and using a more achievable assumed rate of return of 7.0% instead of the rates ofreturn of 7.9% or 8.0% assumed by the Retirement Systems. If one were to apply even more realistic assumed rates ofreturn of 6.25% for GRS and 6.50% for PFRS, respectively, the UAAL totals increase to $2.299 billion for the GRS, and$1.588 billion for the PFRS, as of the end of Fiscal Year 2012

To reduce the risk that the City has experienced from the past investment and discretionary benefit allowance


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plans with its reasonably projected revenues, the City has determined what pension benefit cuts are necessary from theparticipants in each pension plan.

Specifically, the calculation of the aggregate amount of the Allowed PFRS Claims in Class 10 utilizes, amongother assumptions, a 6.50% discount rate to value liabilities and a 6.50% investment return rate for future growth of assets.

This investment return rate is less than the net 8% investment return rate historically utilized by PFRS in calculating theactuarial underfunding of the PFRS pension plan. The calculation of the aggregate amount of the Allowed GRS Claims inClass 11 utilizes, among other assumptions, a 6.25% discount rate to value liabilities and a 6.25% investment return rate forfuture growth of assets. This investment return rate is less than the net 7.9% investment return rate historically utilized byGRS in calculating the actuarial underfunding of the GRS pension plan. In both cases, the City has utilized the lower rateas a measure to ensure that both GRS and PFRS utilize prudent and conservative investment policies going forward toprotect the assets in both pension plans from unnecessary and imprudent risk of depletion to the detriment of the planbeneficiaries and also to insulate the City given its extremely limited cash resources from unforeseen and unbudgetedincreases in required future contributions to the pension plans that could cause the City to experience budget deficits in the

future. The use of these investment return assumptions is consistent with the trend by governmental entities to reducepension funding assumptions, and the particular rates used in the Plan although lower than most jurisdictions nonetheless align with the unique financial inability of the City to weather unanticipated pension investment loss. Theseconservative assumptions are also appropriate given the large percentage of investments held by the pension funds that donot have a readily determinable market value and the uncertainty to actual asset values held by the pension plans as a result.

Based on the City's projected cash flows, as more fully discussed in Section XI and Exhibits I and J, there isinsufficient funding generatedsolelyby projected City revenues in the first 10 years after the Effective Date to provide thereturns to all creditors including Holders of GRS Pension Claims and PFRS Pension Claims that are contemplated in thePlan. As noted above, the Plan, and the treatment of Allowed GRS Claims and Allowed PFRS Claims(together, the "Allowed Pension Claims"), assume the existence and the implementation of the DIA Settlement and thereceipt of the full amounts of the State GRS Consideration and the State PFRS Consideration, all of which amounts areassumed to be paid in equal installments over 20 years. If the DIA Settlement does not occur, or if the full amounts of theState GRS Consideration and the State PFRS Consideration are not received, then the recoveries on account of allUnsecured Claims, including Pension Claims, will be materially diminished. SeeComparison below.

Because the Plan assumes the existence of the DIA Settlment, and the State settlement funds, the Plan assumesthat, through June 30, 2023, the sole sources of funding for Allowed Pension Claims in Classes 10 and 11 consist of:(a) for PFRS, $175 million from the DIA Settlement and all of the State PFRS Consideration; and (b) for GRS, amounts

received on an accelerated basis from DWSD for its portion of the GRS pension plan underfunding and $50 million fromthe DIA Settlement. There is no funding available to the pension funds from the City's General Fund through

June 30, 2023. Instead, any excess cash not required for City operations in this time frame will be utilized for reinvestmentin City services and payments to the Holders of Allowed Unsecured Claims in Classes 7, 9, 12, 13 and 14. For the 10years following June 30, 2023, the Plan assumes that the sources of funding for Allowed Pension Claims in Classes 10 and11 consist of: (a) for PFRS, amounts received from the DIA Settlement and from the City's General Fund; and (b) for GRS,amounts received from the DIA Settlement and the State GRS Consideration as well as amounts from the City's GeneralFund. Importantly, the Plan assumes that DWSD will accelerate, or prefund, the majority of its full allocable share of theGRS UAAL such that, after the initial 10 year period through June 30, 2023 is completed and the unused DIA Settlement

and State settlement moneys are received by the GRS, DWSD will have very small contributions, if any, to make to theGRS. The City believes that such prefunding is consonant with applicable state and local law that permits DWSD to becharged, and pay directly to the GRS, its allocable share of the periodic contributions required to be made to the GRS as acost and expense of operating the City's water and sewer systems. Although DWSD will be prefunding most or all of itsfull allocable share of the City's GRS pension funding obligations ( i.e., funding the majority of such share over 10 yearsinstead of a longer period), it will not be funding any more than its full actual, allocable share of the GRS UAAL.If DWSD can not prefund its actual allocable share to the GRS pension fund, then the cuts to GRS pension beneficiaries


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Holders of PFRS Pension Claims and GRS Pension Claims will generally receive the following amounts:

(a) PFRS Pension Claim HoldersRetired Beneficiaries. A Holder of a PFRS Pension Claim who is retired from the City, or disabled, or who is a

surviving beneficiary and is drawing a monthly pension from PFRS will have his or her pension reduced by an estimated10%,and will receive a monthly pension equal to an estimated 90% of the amount currently being received. In addition,such Holder will not receive the value of any future cost of living allowances also known as COLA payments to his orher monthly pension. If such a Holder were to agree to enter into a timely settlement with the City and the State of

Michigan, the reduction to such Holder's monthly pension would be reduced by an estimated 4% and such Holder

would receive a monthly pension equal to an estimated 96% of the current monthly amount, with no future COLA

payments.

Active Beneficiaries. A Holder of a PFRS Pension Claim who is an active employee of the City and who has

accrued a pension from PFRS as of July 1, 2014 will have such accrued pension frozen and then reduced by an estimated10%. In addition, he or she will not receive COLA payments. If such Holder were to agree to enter into a timelysettlement with the City and the State of Michigan, the reduction to the pension that will be earned as of July 1, 2014

will be an estimated 4%, and the Holder will receive a monthly pension at retirement equal to an estimated 96% of the

amount earned as of July 1, 2014 with no COLA payments. Moreover, in the event the unfunded liabilities of the PFRSfor the Fiscal Year ending June 30, 2014 exceed the unfunded PFRS liabilities as of June 30, 2013, active employees whoare Holders of PFRS Pension Claims will have their monthly pension amounts further reduced to take account of theincrease in the unfunded liabilities.

These reductions for both retired beneficiaries and active beneficiaries will remain in effect for the 10-year periodending June 30, 2023. If, during this 10-year period, the returns on PFRS' invested assets, other actuarial experience orother contributions result in an improvement to the funding level (based on the market value of assets) of PFRS so thatPFRS is projected to have a funding level of more than 80% by June 30, 2023 (based on the market value of assets),modified accrued benefits reduced as described herein may be restored, but only by an amount such that, when taking intoaccount the value of the restored benefits, PFRS will still have a projected 80% funding level.

(b) GRS Pension Claim HoldersRetired Beneficiaries. A Holder of a GRS Pension Claim who is retired from the City, or disabled, or a surviving

beneficiary, and is drawing a monthly pension from GRS will have such pension reduced by an estimated 34%, and willreceive a monthly pension equal to an estimated 66% of the amount currently being received. In addition, such Holder willlose eligibility for, and will not receive the value of, any future cost of living allowances also known as COLA payments to his or her monthly pension. If such a Holder were to agree to enter into a timely settlement with the City and theState of Michigan, such Holder's monthly pension would be reduced by an estimated 26% and he or she would receive a

monthly pension equal to an estimated 74% of the current monthly amount, with no future COLA payments.

Active Beneficiaries. A Holder of a GRS Pension Claim who is an active employee of the City and who hasaccrued a pension from the GRS as of July 1, 2014, will have such accrued pension frozen and then reduced by an

estimated 34%and will not receive COLA payments. If such Holder were to agree to enter into a timely settlement withthe City and the State of Michigan, the reduction to the pension that will be earned as of July 1, 2014 would be 26%, and

such Holder will receive a monthly pension at retirement equal to an estimated 74% of the amount earned as of

July 1, 2014, with no COLA payments. Moreover, in the event the unfunded liabilities of the GRS for the Fiscal Yearending June 30, 2014 exceed the unfunded GRS liabilities as of June 30, 2013, active employees who are Holders of GRSPension Claims will have their monthly pension amounts further reduced to take account of the increase in the unfundedliabilities


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These reductions for both retired beneficiaries and active beneficiaries will remain in effect for the 10-year periodending June 30, 2023. If, during this 10 year period, the returns on GRS' invested assets, other actuarial experience or othercontributions result in an improvement of the funding level (based on the market value of assets) of GRS so that GRS isprojected to have a funding level of more than 80% by June 30, 2023 (based on the market value of assets), modifiedaccrued benefits reduced as described herein may be restored, but only by an amount such that, when taking into account

the value of the restored benefits, GRS will still have a projected 80% funding level.

(c) All Holders of Pension ClaimsUnder the Plan, additional benefits will be provided to those Holders of PFRS Pension Claims and GRS Pension

Claims who are most in need. In particular, a portion of the State PFRS Consideration and the State GRS Considerationwill be attributed to the payment of pension benefits owing to Holders of PFRS Pension Claims and GRS Pension Claimswho accept the settlement and have household income less than a threshold amount to be determined pursuant to furtherdiscussions between the City and the State and tied to federal poverty levels.

THE ESTIMATED PENSION REDUCTIONS DESCRIBED ABOVE ASSUME THE EXISTENCE AND THEIMPLEMENTATION OF THE DIA SETTLEMENT AND THE RECEIPT OF THE FULL AMOUNTS OF THE STATEGRS CONSIDERATION AND THE STATE PFRS CONSIDERATION AS WELL AS DWSD'S MAKINGACCELERATED PENSION CONTRIBUTIONS TO THE GRS OVER THE FISCAL PERIOD ENDING JUNE 30, 2023.IN THE EVENT THAT ANY OF THESE EVENTS DO NOT OCCUR, THE REDUCTIONS TO ACCRUED BENEFITSDESCRIBED IN THIS SECTION WILL BE MATERIALLY GREATER. See Section XII.E.


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B. Classification and Treatment of Claims Under the PlanExcept for Administrative Claims, which are not required to be classified, all Claims that existed on July 18, 2013

(the "Petition Date") are divided into classes under the Plan. The following summarizes the treatment of the classifiedClaims under the Plan.

Description and

Amount of ClaimsTreatment

Class 1A - DWSD Class A Water Claims

(with subclasses for each DWSD Series

of DWSD Class A Water Bonds):Consists of all Claims arising under orevidenced by the DWSD Class A Water

Documents, including a Claim forprincipal and interest on the DWSD ClassA Water Bonds.

Estimated Aggregate Allowed Amount:$322,747,372

Impaired. Unless such Holder agrees to a different treatment of such Claim, each Holder of anAllowed DWSD Class A Water Claim, in full satisfaction of such Allowed Claim, shallreceive on or as soon as reasonably practicable after the Effective Date:

If a DWSD Transaction is consummated on the Effective Date, at the option of the City, either(1) New GLWA Bonds having a principal amount equal to the principal amount of the DWSD

Class A Water Bonds held by such Holder; or (2) Cash in the full amount of such AllowedDWSD Class A Water Claim. Each Holder of an Allowed DWSD Class A Water Claim in aClass of DWSD Class A Water Claims that accepts the Plan may elect to receive New ExistingRate GLWA Bonds having a principal amount equal to the principal amount of the DWSDClass A Water Bonds held by such Holder in lieu of New GLWA Bonds.

If a DWSD Transaction is not consummated on the Effective Date, New DWSD Bonds havinga principal amount equal to the principal amount of the DWSD Class A Water Bonds held bysuch Holder; provided, that, in lieu of the foregoing treatment, the City alternatively may electto Reinstate any DWSD Series of DWSD Class A Water Bonds by filing a notice of such

Reinstatement prior to the commencement of the Confirmation Hearing. Each Holder of anAllowed DWSD Class A Water Claim in a Class of DWSD Class A Water Claims that acceptsthe Plan may elect to receive New Existing Rate DWSD Bonds having a principal amountequal to the principal amount of the DWSD Class A Water Bonds held by such Holder in lieuof New DWSD Bonds.

Estimated Percentage Recovery: 100% of principal amount

Class 1B - DWSD Class B Water Claims


of DWSD Class B Water Bonds):Consists of all Claims arising under orevidenced by the DWSD Class B WaterDocuments, including a Claim for

principal and interest on the DWSDClass B Water Bonds.

Estimated Aggregate Allowed Amount:$2,168,184,217

Impaired. Unless such Holder agrees to a different treatment of such Claim, each Holder of anAllowed DWSD Class B Water Claim, in full satisfaction of such Allowed Claim, shall receive

on or as soon as reasonably practicable after the Effective Date:If a DWSD Transaction is consummated on the Effective Date, at the option of the City, either(1) New GLWA Bonds having a principal amount equal to the principal amount of the DWSDClass B Water Bonds held by such Holder; or (2) Cash in the full amount of such AllowedDWSD Class B Water Claim. Each Holder of an Allowed DWSD Class B Water Claim in aClass of DWSD Class B Water Claims that accepts the Plan may elect to receive New ExistingRate GLWA Bonds having a principal amount equal to the principal amount of the DWSDClass B Water Bonds held by such Holder in lieu of New GLWA Bonds.

If a DWSD Transaction is not consummated on the Effective Date, New DWSD Bonds having

a principal amount equal to the principal amount of the DWSD Class B Water Bonds held bysuch Holder; provided, that, in lieu of the foregoing treatment, the City alternatively may electto Reinstate any DWSD Series of DWSD Class B Water Bonds by filing a notice of suchReinstatement prior to the commencement of the Confirmation Hearing. Each Holder of anAllowed DWSD Class B Water Claim in a Class of DWSD Class B Water Claims that acceptsthe Plan may elect to receive New Existing Rate DWSD Bonds having a principal amountequal to the principal amount of the DWSD Class B Water Bonds held by such Holder in lieu


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Description and

Amount of ClaimsTreatment

Class 1C - DWSD Class A Sewer Claims


of DWSD Class A Sewer Bonds):Consists of all Claims arising under orevidenced by the DWSD Class A SewerDocuments, including a Claim for

principal and interest on the DWSDClass A Sewer Bonds.

Estimated Aggregate Allowed Amount:$439,440,528

Impaired. Unless such Holder agrees to a different treatment of such Claim, each Holder of anAllowed DWSD Class A Sewer Claim, in full satisfaction of such Allowed Claim, shall

receive on or as soon as reasonably practicable after the Effective Date:

If a DWSD Transaction is consummated on the Effective Date, at the option of the City, either(1) New GLWA Bonds having a principal amount equal to the principal amount of the DWSDClass A Sewer Bonds held by such Holder; or (2) Cash in the full amount of such AllowedDWSD Class A Sewer Claim. Each Holder of an Allowed DWSD Class A Sewer Claim in aClass of DWSD Class A Sewer Claims that accepts the Plan may elect to receive New ExistingRate GLWA Bonds having a principal amount equal to the principal amount of the DWSDClass A Sewer Bonds held by such Holder in lieu of New GLWA Bonds.

If a DWSD Transaction is not consummated on the Effective Date, New DWSD Bonds having

a principal amount equal to the principal amount of the DWSD Class A Sewer Bonds held bysuch Holder; provided, that, in lieu of the foregoing treatment, the City alternatively may electto Reinstate any DWSD Series of DWSD Class A Sewer Bonds by filing a notice of suchReinstatement prior to the commencement of the Confirmation Hearing. Each Holder of anAllowed DWSD Class A Sewer Claim in a Class of DWSD Class A Sewer Claims that acceptsthe Plan may elect to receive New Existing Rate DWSD Bonds having a principal amountequal to the principal amount of the DWSD Class A Sewer Bonds held by such Holder in lieuof New DWSD Bonds.

Estimated Percentage Recovery: 100% of principal amount

Class 1D - DWSD Class B Sewer Claims


of DWSD Class B Sewer Bonds):Consists of all Claims arising under orevidenced by the DWSD Class B SewerDocuments, including a Claim for

principal and interest on the DWSDClass B Sewer Bonds.

Estimated Aggregate Allowed Amount:$2,350,667,924

Impaired. Unless such Holder agrees to a different treatment of such